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Fixed Rate Home Loans (2022): A Way to “Escape” Rising Interest Rates?

PropertyGuru Editorial Team
Fixed Rate Home Loans (2022): A Way to “Escape” Rising Interest Rates?
With interest rates climbing in 2022, how can homeowners get their bang for the buck when taking out a home loan? Many may think using fixed rate home loans is the best way to “escape” these rising interest rates – today we discuss and evaluate whether this is really the case.
The COVID-19 pandemic and geopolitical tensions in recent years have led to rising inflationary pressures across the world. In response, countries are raising interest rates in an attempt to cool inflation.
Earlier in June, the U.S. Federal Reserve raised interest rates by a whopping 75 basis points – the most aggressive interest rate hike since 1994. Singapore too, is following suit, with local banks raising interest rates nationwide. Even though the average interest rates of loans were as low as 1% a year ago in 2021, interest rates today have hit highs of over 2% as of June.
Amidst today’s volatile economic climate, fixed rate home loans can take the uncertainty out of mortgage payments by helping to safeguard against potential increases in interest rates in the short term.

What Are Fixed Rate Home Loans?

Simply put, fixed rate home loans are loans with a fixed interest rate in the short-term. The fixed rate period is usually between two and five years; after which, the interest rates will be pegged to a reference rate as determined by the bank, like board rates or the Singapore Overnight Rate Average (SORA).
But why should homeowners select fixed rate home loans over, say, floating rate home loans? Well, there are several reasons why fixed rate home loans are preferred, particularly in today’s landscape where interest rates are on the rise.

Fixed rate home loans give buyers a piece of mind as it provides a guaranteed rate of repayment in the short term. With inflationary pressures remaining high and interest rates showing no signs of abating at the moment, fixed rate loans also allow homeowners to lock in their loans at a lower interest rate for a few years. This is especially ideal for those with a lower risk appetite.

What Is the Best Fixed Rate Home Loan for Me?

Now that you know what fixed rate home loans are, how do you decide which one is the right one for you? Loans can differ in their interest rates and lock-in periods, as well as other conditions such as refinancing, conversion of packages and so on. All of these are factors you may want to take into account before making a decision.
In the table below, you’ll find a summary of different fixed rate home loans offered through PropertyGuru Finance (updated as of 23 August 2022), and who each loan may be best suited for.
Lock-in period
1 year
5 years
1 year
2 years
2 / 3 years
2 / 3 years
Year 1
2.50%
2.75%
2.60%
2.75%
2.80% / 2.90%
2.98% / 3.08%
Year 2
2.48% (3M SORA + 1.00%)
2.75%
2.48% (3M SORA + 1.00%)
2.75%
2.80% / 2.90%
2.98% / 3.08%
Year 3
2.68% (3M SORA + 1.20%)
2.75%
2.68% (3M SORA + 1.20%)
2.98% (3M SORA + 1.50%)
3.45% (1M SORA + 1.60%) / 2.90%
2.73% (3M SORA + 1.25%) / 3.08%
Year 4
3.08% (3M SORA + 1.60%)
2.75%
3.08% (3M SORA + 1.60%)
2.98% (3M SORA + 1.50%)
3.45% (1M SORA + 1.60%)
2.73% (3M SORA + 1.25%)
Year 5
3.08% (3M SORA + 1.60%)
2.75%
3.08% (3M SORA + 1.60%)
2.98% (3M SORA + 1.50%)
3.45% (1M SORA + 1.60%)
2.73% (3M SORA + 1.25%)
Thereafter
3.08% (3M SORA + 1.60%)
2.98% (3M SORA + 1.50%)
3.08% (3M SORA + 1.60%)
2.98% (3M SORA + 1.50%)
3.45% (1M SORA + 1.60%)
2.73% (3M SORA + 1.25%)
Remarks
No partial pre-payment

No waiver due to sales

Free package conversion
No partial pre-payment



Waiver due to sales No free package conversion



DBS offers loan packages ranging from 1 to 5 years, with similar rates (i.e. 2.75% for lock-in period, and 2.98% thereafter)
No partial pre-payment



No waiver due to sales



Free package conversion
No partial pre-payment



Waiver due to sales



Free package conversion
No partial pre-payment



No waiver due to sales



Free package conversion
Partial pre-payment



Waiver due to sales



Free package conversion
Verdict
Lowest interest rates upfront, but rises significantly after year 3
Greatest stability with fixed rates up to 5 years
Highest interest rates upfront, but lower interest rates thereafter due to lower spread fee



Greatest flexibility in terms of pre-payment and waivers
*Promotional Offer packages are deviated interest rates. These are unpublished rates by the bank that are only offered under our brokerage, and subject to the bank’s approval. Please reach out to a PropertyGuru Finance mortgage expert for more information.
As seen by the above packages, fixed rate home loans are ideal for safeguarding against the environment of rising interest rates. By having fixed interest rates in the near term of between one and five years, homeowners can have the peace of mind that their mortgage repayments will remain constant for the duration of the lock-in period. This allows for better planning of finances and removes the uncertainty of a tumultuous economy, especially in today’s day and age.
However, it should be noted that the interest rates for fixed rate loans do tend to be slightly higher than that of floating rate home loans. Check out the next section of this article to learn more about floating rate home loans, and how they compare.
Fixed rate home loans are great for short-term stability, but what happens after? Well, homeowners may have the option to refinance their loans after the lock-in period is up! This will allow homeowners to switch banks if someone else is offering a more attractive interest rate.
While home loan refinancing may incur additional fees, such as a legal conveyancing fee, banks often offer incentives to cover those so do check with your broker or bank for more information. Hence, refinancing is a popular way to actively manage your home loan and keep interest costs low.
Unsure of whether or not refinancing is a good option for you? PropertyGuru Finance’s SmartRefi tool can help you calculate whether or not it makes sense for you to refinance, and notify you of the best time to do so!

smartrefi

Track your mortgage against daily market rates and sign up for alerts when there are opportunities to refinance for greater savings.

Deciding what type of housing loan to go for can be a difficult decision, with many factors to consider. It’s important to remember that there’s no one-loan-fit-all answer! The ‘right’ housing loan for you may not be the same as that for someone else’s and will depend on your individual financial situation and risk appetites.

What About Floating Rate Home Loans?

Unlike fixed rate home loans, floating rate home loans are pegged to reference rates such as SORA or Singapore Interbank Offered Rate (SIBOR). Banks will use these as points of reference to determine the interest rates set. The actual interest rates on the loan will be higher than the reference rates, as banks must charge a fee on top of the baseline to make a profit (known as the ‘spread’).
One key thing to note about floating rate home loans is that interest rates tend to be slightly lower than that fixed rate home loans. This is because homeowners are expected to pay a premium for the certainty and stability the fixed rate loans provide. At the moment, the interest rates for floating rate home loans range from as low as 2.05% to slightly over 3%, as compared to the minimum rate of about 2.50% of fixed rate loans.
However, what homeowners lose in exchange for lower rates upfront is future certainty. As their name suggests, floating rate loans mean that interest rates may change month-to-month or every few months. This means that if interest rates are constantly rising over the short-term, homeowners will find themselves forking out larger sums of money over time.
Floating rate home loans may thus be preferred over fixed rate loans if homeowners are confident that interest rates may fall in the short term, but the risk is always present. The inverse, of course, is also true. In an environment of rising interest rates, fixed rate loans may be the strategy to go for!
With quite a few factors to consider, it’s important to understand all the options available! To do so, you can speak with our mortgage experts.
You can set up a dedicated consultation, during which our experts can give you honest, unbiased recommendations and advice, and apply for home loans on your behalf, taking all the trouble out of home loan applications.
Disclaimer: The figures mentioned in this article are correct at the time of writing, 23 August 2022, and are meant as a guide only. The interest rates are subject to change, check out the latest home loan rates and packages on PropertyGuru Finance before applying for a new home loan!
Thinking of getting a bank home loan? Compare the best mortgage rates on PropertyGuru Finance, or contact us for more personalised advice and recommendations:
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Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
PropertyGuru will endeavour to update the website as needed. However, information can change without notice and we do not guarantee the accuracy of the information on the website, including information provided by third parties, at any particular time. Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs. PropertyGuru does not give any warranty as to the accuracy, reliability or completeness of information which is contained on this website. Except insofar as any liability under statute cannot be excluded, PropertyGuru and its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person.

    More FAQs on Fixed Rate Home Loans

    Fixed rate home loan packages offer a fixed rate for a few years, usually between two to five years, before increasing.

    Most banks in Singapore offer fixed rate home loans. You may check PropertyGuru Finance for the latest mortgage offerings.

    There is no "good" or "bad" home loan. It all depends on your needs! In particular, fixed rates give borrowers more savings in an increasing interest rate environment by safeguarding against rising costs.